Week 4 Assignment

999 words 4 pages
Liability
1. Payroll accounting. Assume that the following tax rates and payroll information pertain to Brookhaven Publishing:
Social Security taxes: 4% on the first $55,000 earned per employee
Medicare taxes: 1.5% on the first $130,000 earned per employee
Federal income taxes withheld from wages: $7,500
State income taxes: 4% of gross earnings
Insurance withholdings: 1% of gross earnings
State unemployment taxes: 5.4% on the first $7,000 earned per employee
Federal unemployment taxes: 0.8% on the first $7,000 earned per employee
The company incurred a salary expense of $50,000 during February. All employees had earned less than $5,000 by month-end and no wages have been paid during the month.
a. Prepare the necessary
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Date Account Debit Credit
1-dec Cash $10,000 1-dec Notes Payable $10,000
10-dec Warranty expense $810 (.03 x 1000 x $27) 10-dec Warranty Liability $810
22-dec Merchandise Inventory $16,000 22-dec Accounts payable $16,000
26-dec Cash $5,000 26-dec Notes Payable $5,000
31-dec Warranty Liability $162 31-dec Cash $162
31-dec Salaries Expense $1,400 31-dec Salaries Payable $1,400
Prepare adjusting entries on December 31 to record accrued interest for each of the notes payable.
Date Account Debit Credit
31-dec Interest Expense $135.43 31-dec Interest Payable $135.43
$10,000 (loan) x 15% (interest) x 1/12(one month) = $125
$5,000 (loan) x 15% (interest) x 5/360 (five days based 360 days)= $10.43
3. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:
2-Aug: Borrowed $55,000 from the Bank of Kingsville by signing a 90-day, 12% note.
20-Aug: Issued a $50,000 note to Harris Motors for the purchase of a $50,000 delivery truck. The note is due in 180 days and carries a 12% interest r ate.
10-Sep: Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed.
11-Sep: Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and carries a 14% interest rate.
10-Oct: The note to Pans Enterprises was paid in

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